OLDWICK, N.J.--(BUSINESS WIRE)--The operating environment for U.S. private mortgage insurers (PMI) continues to be favorable due to a low unemployment rate and a core inflation rate still in check despite signs of deteriorating macroeconomic conditions, which in turn support AM Best’s stable market segment outlook on the industry.
The Best’s Market Segment Report, titled, “Market Segment Outlook: U.S. Private Mortgage Insurers” states that the industry’s combined ratio has improved over the last few years, to 29.2 in 2018 from 106.4 in 2013, with favorable results expected to continue into 2019. AM Best also expects the percentage of loans in default to continue its decline from previous years as the legacy insured loans continue to mature and become a smaller proportion of the entire PMI portfolio. PMIs also have continued to cede more of their risk to the reinsurance market through various quota share and excess-of-loss programs, which serve as mechanisms to reduce potential losses in case of a market downturn.
AM Best anticipates that the PMI industry will continue to cede more risk to capital market participants through the issuance of mortgage insurance-linked securities (MILS). In 2015-2018, $4.15 billion was ceded to the capital market, while approximately $2.98 billion in MILS’ was issued in 2018.
Overall, AM Best expects the mortgage insurance industry to continue its slight upward trajectory as the favorable market conditions continue; however, this could be hampered by future macroeconomic risk of a slowdown or recession and premium rate decreases as competition continues to increase among the PMIs. AM Best will continue to gauge the overall capital adequacy of the PMIs as they accumulate long-dated mortgage risk.
To access the full copy of this market segment report, please visit http://www3.ambest.com/bestweek/purchase.asp?record_code=283545.
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